19
May 2016

Not so super budget changes

Not so super budget changes

Written by Hudson Adviser Michal Park

So it’s been just over two weeks now since the 2016 Budget was released – and since that time we have all been inundated by the good, bad and ugly of the Liberal Government’s “economic plan” proposals.   I thought it high time that Hudson Financial Planning  give some attention to the elephant in the room, and address the particularly juicy superannuation proposals that have the most relevance to Hudson members.  Whilst there were several announcements within the superannuation space that will have major impacts on individuals, there are only two I wish to focus on today –

  1. Changes  to contributions caps including the reduction of concessional caps to $25,000 per annum and the introduction of a lifetime non-concessional cap of $500,000, and
  2. Restricting tax-concessions associated with transition to retirement pensions.

In his latest Eureka Report, Alan Kohler takes aims at Peter Costello’s 2006 Budget and puts the blame squarely on his shoulders for creating the unsustainable “simplified” superannuation system we have been enjoying up until now.  His Budget speech included, most notably, zero tax on lump sum withdrawals and pensions after age 60.  In a nutshell, we will all now be paying for these concessions  with the new raft of changes in the latest Budget by Scott Morrison.

$500,000 non-concessional lifetime cap: The most controversial of the proposals would have to be the $500,000 lifetime limit on non-concessional (or after tax) contributions, effective immediately.  Up until 3 May 2016, the limit was $180,000 per annum or the ability to bring forward  years worth of contributions ($540,000) in one hit.  If this new lifetime cap is not restrictive enough, it takes into account contributions going back to 1 July 2007.  Individuals, who have contributed more than $500,000 over this period, will be precluded from making any additional non-concessional contributions in future. Let’s take a moment to recall that at one point, back in the 2006/2007 financial year (the year of Costello), if you were aged under 65 years you could contribute $1,000,000 after tax to superannuation.   

HUDSON FP COMMENT: It is worth noting that this is merely a proposal at this stage, though regrettably one which will probably stick regardless of who wins the election.  This massive reduction is a major blow for individuals with assets in their personal names who were planning to sell and move the sale proceeds into superannuation at the end of their working life (to take advantage of the concessionally taxed superannuation environment).  If there is any silver lining with this particular proposal, it is that individuals are still able to move at least half a million into superannuation after tax, which despite its shortcomings and seemingly constant legislative changes, continues to be one of, if not the, most tax effective environments  for those nearing  retirement.

$25,000 per annum concessional cap: On the flip side of non-concessional contributions are concessional contributions, or those which are taxed at 15% within superannuation.  The proposal is that these caps be reduced to $25,000 per annum for all, come 1 July 2017.  At present these caps are $35,000 per annum, for individuals age 49 and overand $30,000 per annum for individuals under age 49.  Again, just to highlight the differences in 10 years, back in the 2007 and 2008 financial years, individuals aged over 50 could contribute $100,000 per annum concessionally  to superannuation and individuals aged under 50, could contribute $50,000.

HUDSON FP COMMENT: Whilst this reduced cap will create headaches for higher income earners (if you earn in excess of $250,000, your cap has just about been met by the government superannuation guarantee of 9.50%, so salary sacrificing may very well be out of the question) it does create opportunities for other individuals to “catch-up” on concessional contributions via the ability to carry forward any unused cap amounts for up to five years. There is also at least one more year to take full advantage of the higher caps – so if you have the means, do so.

Tax changes to Transition to Retirement Pension: Lastly, Transition to Retirement Pensions – the proverbial goose that lays the golden egg of the last 11 years.  Established in July 2005 for the purposes of helping older individuals transition to part time work and top up their income with a pension via their superannuation benefits, these strategy’s have largely been “abused” (though well within the parameters I might add) to boost superannuation savings whilst reducing tax by way of tax free earnings in pension phase in addition to salary sacrificing benefits.  Come 1 July 2017, the goose will die.  The intention is for the tax exempt status of such assets in pension phase to be removed and earnings to be taxed at 15% (with no grandfathering to apply).

HUDSON FP COMMENT: Quite simply, from 1 July 2017, Transition to Retirement strategies will really only benefit individuals over the age of 60 - and that is only for those who have the ability to use their tax free income stream to replace salary sacrificed income to superannuation.  There is little to no benefit in moving to a Transition to Retirement Strategy for individuals under age 60, where the income stream you draw from the taxed amount of your superannuation will be taxed at your marginal tax rate (albeit with a 15% tax offset).  For individuals already using this strategy who are under age 60, whether you continue the strategy or commute back to superannuation makes no material difference.  Of course there will always be a minority who fall outside these generalisations, so each case will need to be reviewed individually.

                                      

Read in full + comments 1 Comments

Do you have a
'Dear Adviser' question?

Ask a question
Get in touch with Hudson and one of our advisers may be able to answer your question.

Ask our advisers now

Issues by month/year

Special Edition

May-2017-(C)

June-2017-(C)

June-2016-(C)

Insurance

February-2017-(C)

February-2016-(C)

December-2017-(C)

August-2016-(C)

2020-10-19

2020-09-25

2020-08-28

2020-07-31

2020-07-23

2020-07-03

2020-05-29

2020-05-01

2020-03-27

2020-02-28

2020-01-31

2019-12-20

2019-11-29

2019-10-25

2019-09-27

2019-08-30

2019-07-31

2019-06-28

2019-05-31

2019-04-30

2019-03-29

2019-03-01

2019-02-28

2018-12-21

2018-11-30

2018-10-26

2018-09-28

2018-08-31

2018-07-27

2018-06-29

2018-05-25

2018-04-27

2018-03-30

2018-02-23

2018-01-26

2017-12-15

2017-11-24

2017-10-27

2017-09-29

2017-08-25

2017-07-28

2017-06-30

2017-05-26

2017-04-28

2017-03-31

2017-02-24

2017-02-16

2017-01-27

2016-12-16

2016-11-30

2016-11-18

2016-11-11

2016-11-04

2016-10-28

2016-10-21

2016-10-14

2016-10-07

2016-09-30

2016-09-23

2016-09-16

2016-09-09

2016-09-02

2016-08-26

2016-08-19

2016-08-12

2016-08-05

2016-07-29

2016-07-22

2016-07-15

2016-07-08

2016-07-01

2016-06-24

2016-06-17

2016-06-10

2016-06-03

2016-05-27

2016-05-20

2016-05-13

2016-05-06

2016-04-29

2016-04-22

2016-04-15

2016-04-08

2016-04-01

2016-03-25

2016-03-18

2016-03-11

2016-03-04

2016-02-26

2016-02-19

2016-02-12

2016-02-05

2016-01-29

2015-12-04

2015-11-27

2015-11-20

2015-11-13

2015-11-06

2015-10-30

2015-10-16

2015-10-09

2015-10-02

2015-09-25

2015-09-18

2015-09-11

2015-09-04

2015-08-28

2015-08-21

2015-08-14

2015-08-07

2015-07-31

2015-07-24

2015-07-17

2015-07-10

2015-07-03

2015-06-26

2015-06-19

2015-06-12

2015-06-05

2015-06-02

2015-05-29

2015-05-22

2015-05-15

2015-05-08

2015-05-01

2015-04-17

2015-04-10

2015-04-03

2015-03-27

2015-03-20

2015-03-13

2015-03-06

2015-02-27

2015-02-20

2015-02-13

2015-01-30

Topics


Search all issues

Enjoy reading the Hudson Report?

Let us know your views on our news.

Contact Hudson Online